I wish Facebook would go public so that all this analysis of the social web and its potential (or NOT) can actually be an investable thesis (Long OR Short) instead of an intellectual exercise like this post. Also, when a company is public, the analysis becomes better since one has to assign specific buy/sell numbers instead of 50,000 ft binary outcome type analysis (e.g. Groupon will collapse)
Anyhow- my hypothesis is that social networks are like TV shows and they rise and fall with trends/times. More at this post here:
The BEST researcher in this space is Danah Boyd, whose work I have been following for some time when she was in academia and before
Microsoft. She gave comments for a recent article on MySpace.
I thought that the key metric to see when Facebook will start falling is when US visitors will drop since the US media drives trends. But apparently its a subset of that – all that needs to happen is a specific influencer subset (e.g. “white middle class kids”) to start getting bored and the whole “knitting scarf” will unravel. To be even more specific, the key metric IMHO will be “status updates or photos uploaded per influencer” If that starts dropping, then that might be the time to short Facebook (if they were public!)
These influencers are also even more important because they are also the content producers. So, a reverse network effect accelerates as the influencers stop producing content and the other followers, seeing less interesting content, follow the influencers.
A very interesting post by Brad Burnham (partner at Union Square Ventures) talks about this fact of users creating content and that being the strength of a social network:
“So the users of these services are not just consumers, they are a necessary participant in the creation of the service. Since all these services require a large base of users for their filtering techniques work, you could just as easily ask why the services are not paying their producers. Debating whether to charge these same producers make little sense.”
Key Comments/excerpt from the Danah Boyd/Myspace article:
Social networks appear to be a very peculiar business—one in which
companies might serially rise, fall, and disappear.
Danah Boyd, a senior researcher who studies social networks at
Microsoft Research, attributes their instability to the way users can
bind themselves by race and class, taste and aesthetics. Influential
peers pull others in on the climb up—and signal to flee when it’s time
to get out. “The thing about user adoption and user departure is that
it’s not a steady flow,” says Boyd. “Think of it as, you’re knitting a
beautiful scarf, and you’re knitting and knitting, and you get a
bigger and bigger scarf. Then someone pulls a loose thread at the
bottom. And it all unravels….
“Facebook did a fantastic job of hiding behind the panic around
Myspace and basically saying, ‘We’re totally safe,’ ” says Boyd.
Myspace’s inability to build an effective spam filter exacerbated the
public impression that it was seedy. And that, says Boyd, contributed
to an exodus of white, middle-class kids to the supposedly safer haven
of Facebook—a movement she compares to the “white flight” from
American cities in the second half of the 20th century. Myspace was